Industry watchers are saying Abbott overpaid in its $3.7 billion acquisition of Kos Pharmaceuticals this week, but it's tough to put a price tag on instilling fear in the reigning champs of cardiovascular drugs. The deal, which adds three cholesterol drugs to Abbott's franchise, creates a combined company that threatens Pfizer and Merck in their struggle to hang onto the market they once dominated.

With the deal, which Bruce Cranna, an analyst at Leerink Swann & Company, dubbed "fairly expensive," Abbott adds Niaspan (niacin extended-release), Advicor (Niaspan/lovastatin), and the yet-to-be-approved Simcor (Niaspan/simvastatin).

Neither Niaspan nor Advicor has reached the blockbuster status that many cardiovascular drugs achieve--but the acquisition could change the competitive landscape. The deal "puts more horsepower behind the most significant HDL-raising franchise on the market," said Robert Hazlett, an analyst at BMO Capital Markets.

The real test, however, will be whether Abbott and Kos can break into the combination market. As the patent clock ticks on some of pharma's biggest cardiovascular moneymakers, companies are rushing to launch the next generation of blockbusters that pair statins with drugs that raise HDL levels.

As part of a separate deal struck earlier this year, Abbott will pair its "good cholesterol" drug TriCor (fenofibrate) with AstraZeneca's Crestor (rosuvastatin). The move came on the heels of its acquisition of Guidant's vascular business.

One company that is likely watching Abbott's recent moves closely is Pfizer, which is placing bets on its own next-generation combination drug in the high-stakes race. With Lipitor (lovastatin) coming off patent in 2010, Pfizer is staking at least part of its future on being able to extend the life of its $6.6 billion earner by pairing it with experimental HDL-raiser torceptrapib. 

Yet the combination therapy, which would compete with the Crestor/TriCor drug, was dealt a blow last week when early results from a clinical study suggested that it raises blood pressure.

This week's deal with Kos does not pose a specific threat to any of Pfizer's products, but it signals that Abbott is angling for a bigger piece of the cardiovascular market. "It is kind of a land of giants," Cranna said. With Kos in its arsenal, Abbott--a relative newcomer in the lucrative cardiovascular market--is better armed to compete against the marketing might of Pfizer and Merck.

The hefty price tag on Kos makes sense if Abbott expects to realize significant cost cutting as a result of overlap between the two companies, according to Cranna.

Another variable in the deal will be Niaspan's performance in 2008, he said, since Kos' lead product is under a "fairly sizeable competitive threat." Niaspan can cause an unpleasant flushing side effect, which other cholesterol boosters in the pipeline aim to eliminate.

But the Kos acquisition also builds Abbott's pipeline with two additional primary care products still in development: asthma drug Flutiform--a combination steroid/beta-agonist that has gotten a lot of interest on Wall Street--and an inhaled insulin product for diabetes.

Abbott spokesman Jonathan Hamilton noted that the company would be appointing an integration team to assess post-merger operations. He declined comment on cost savings, but noted that Abbott would be increasing its R&D facilities.

Many of the uncertainties for Abbott spell immediate gains for Kos.

"One of the key issues with Kos is that management was wrestling with how to realize good profitability and growth," Hazlett said. "They were wrestling with earnings today versus earnings tomorrow. Abbott has a much larger footprint; they've been able to market their products very successfully."

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Abbott's acquisition of Kos creates a viable contender in the fight for cardiovascular market share.

And in this corner ...

It's the most expensive English lesson that the drug industry has ever taken. In a key ruling last week that may leave pharma open to a barrage of fraud and over-billing cases, a Massachusetts judge determined that "average wholesale price" is the sum of its dictionary parts--no more, no less.

The decision in the Boston courtroom of U.S. District Judge Patti Saris was a stinging rebuke for pharma lawyers arguing that AWP is a "term of art" with a widely understood meaning within the industry. "Determining the plain language meaning of ... the term is a straightforward exercise that begins with the dictionary," Saris' decision read. She then proceeded to cite 

Webster's Third New International Dictionary of the English Language

 entries for the words "average," "wholesale," and "price."

This schoolmarmish instruction allowed a national class-action suit against 42 drug makers, filed in 2002, to go forward. The case, which charges the companies with inflating drug prices by reporting AWP as a "sticker price" rather than the average price being charged to wholesalers, opened on Monday in Boston. Saris narrowed the case to AstraZeneca, Johnson & Johnson, Schering-Plough, and Bristol-Myers Squibb.

Medicare uses AWPs provided by the industry to make drug reimbursement decisions. Pharma does not dispute that AWP has come to represent a list price for purposes of Medicare reimbursement. But the defendants argued that Congress knew that AWPs did not represent actual prices, and altered its reimbursement decisions accordingly.

Saris too acknowledged that Congress had "a nagging concern that AWP was no longer a reasonable price" on which to base drug paybacks. But "the court's independent experts pointed out that 'inconsistent and ambiguous information exists even currently concerning what type of price AWP measures. The continuing confusion is real and understandable,'" she wrote. "Therefore the defendants have not shown that the term 'average wholesale price' had an established and settled meaning in the industry as a term of art."

If the term AWP is not a term of art, she continued, then it "will be construed under the plain language doctrine of statutory construction"--and with that, the judge headed straight for 

The ruling could throw a wrench in pharma's defense, depending on whether Saris will still allow the companies to explain the context in which they were reporting AWPs.

An attorney for the plaintiffs was understandably upbeat. "Most of their defense to the Medicare part of the case is gone," said Steve Berman, managing partner at Hagens Berman Sobol Shapiro, which filed the suit. "It's a significant ruling for us." Hagens Berman is suing on behalf of Medicare beneficiaries and third-party Medigap insurance providers that made payments for Medicare Part B or physician-administered drugs.

Drugs covered under Part B include Coumadin (warfarin), Imitrex (sumatriptan), Remicade (infliximab), Taxol (paclitaxel), and others.

The Massachusetts ruling may reverberate in jurisdictions throughout the land. State and federal courts deciding other AWP cases may adopt this first-ever judicial definition of AWP.

In what may be the wave of the future, GlaxoSmithKline in August became the first company to settle out of court, for $70 million.

Judge defines term ahead of Medicare fraud trial.

'Average Wholesale Price' Means Lawsuits for Pharma

As the December 1 deadline for adopting FDA's drug-tracking system looms, drug companies are kicking their compliance efforts into high gear--while wholesalers seek an injunction to delay the law.

The so-called pedigree system, mandated in June, has been a work in progress for nearly 20 years, beginning with the Prescription Drug Marketing Act of 1987. Largely due to protests by wholesalers, which argue that the expensive technology required for drug tracking is too costly and cumbersome, FDA's efforts to require adoption have fallen short.

Without formal guidance, pharmaceutical companies have over the years made disparate efforts to thwart counterfeiters, making it difficult to formulate an industry standard. In light of FDA's pedigree system finally coming to fruition, however, drug companies appear inspired to take on more substantial drug-tracking efforts.

"The industry has actually been taking this very seriously," said Brenda Kelly, vice president of marketing and regulatory affairs at SupplyScape, which sells e-pedigree products. "Quite a few companies are making investments now."

AstraZeneca, for one, recently launched a global security initiative to protect two of its most vulnerable products--including its top brand Nexium (esomeprazole)--using 2D bar-coding technology. The drug-tracking program is being rolled out in 22 countries.

"AstraZeneca is the first in the industry to take a broad brush and say, 'We're going to take a leadership position,'" said David DeJean, director of global sales at Systech, which is working with AstraZeneca. "A lot of companies took a wait-and-see approach to serialization."

Pfizer and Purdue Pharma have been two of the most vocal proponents of FDA's pedigree system for their heavily targeted Viagra (sildenafil) and OxyContin (oxycodone). The agency mandated the use of tracking technology in June, touting radio-frequency identification (RFID) as a potential industry standard. But at $0.40 per prescription, smaller drug companies were cool to the law. And when wholesalers and pharmacies realized that they would have to pony up for pricey RFID scanners to read product codes, they became disenchanted.

"Pharmaceutical companies realize there's no benefit to having adulterated product on the market," said Jeff Steinberg, a partner in Ernst & Young's Business Risk Services group.

Asked who is likely to take the lead on implementing a universal tracking standard, Steinberg replied, "I think it will be the pharmaceutical companies."

And where does FDA stand? A spokeswoman declined comment on pharma or wholesaler efforts, nothing that the agency would issue additional information "shortly."

After decades of disparate attempts to secure supply chains, pharma companies may finally be getting on the same page.

Pharmaceutical Executive-11-08-2006

And in this corner ...

'Average Wholesale Price' Means Lawsuits for Pharma

On the Right Track